Managing student loan debt is a challenge that more than half of all millennials have to deal with, and that’s on top of all of the other hurdles we have had to face that previous generations did not, i.e. dotcom bust, financial crisis, Covid-19, rising costs of living & healthcare without equal rising of paychecks, surviving 2020…the list goes on.

We hear over and over again that we need to save money. But to a lot of us, saving is an afterthought—or even a luxury—what with rising debt & disparity hanging over us. Did you know that the average monthly payment for student loan debt is $200-$315/month?!

But what I’d like to do today is re-frame your mindset around your debt. A mindset shift, if you will. Because the fact of the matter remains: it’s true, building an emergency fund and saving (and investing) for the future still remains the most important thing you can do for your financial health, not paying off your debt.

Maybe you can relate? 

Gather ‘round, allow me to tell you a true story. We had an elder millennial couple ( that’s my camp!) come to see us for financial guidance last year, and they came in quite proud that they had been working hard (like, really hard) at paying off all of their student loan debt. 

Now, this may seem like a smart idea—aren’t we all supposed to be paying off our debt like Daddy Dave tells us to (over and over again)? Well, when we took a closer look at their full picture, we quickly realized that they only had about $2,000 in cash savings. With two young children and two not-secure-enough jobs, this is far less than where they needed to be.

At the time, they had above average dual income streaming in, and they had decided to downsize their home in order to decrease their expenses—again, to put more towards their debt.

Sounds impressive, right?

Not so fast. Consider the sacrifices made here. During an emergency, inadequate funds on hand can push you into ugly credit card debt or force you to dip into your retirement accounts (if you have them) and generate nasty penalties, not to mention the loss of compounding interest that long-term savings can potentially generate.

Our recommendation to them? Pull back on the aggressive payments towards their student loan debt so they can start saving more for emergencies and put that money to work on their intermediate and long-term goals. Think: investing in their new business, a down payment on a new home or car, their children’s education and their retirement funds.

This may not resonate to your exact situation, but if 2020 has taught us anything…it’s to prepare for the unexpected, no matter how rosy your situation may seem right now.

Now I’m confused…should I not pay off my student loan debt?

Now, don’t get me wrong…you should be paying off your student loan debt! However, it may be time to reconsider your paying off strategy. And it’s worth saying here that if you’re making enough income to pay more than minimums towards your debt while also adequately saving for the future…you go ‘head! I applaud you . But I would venture to say that you’re reading this article because, like most of us on the debt struggle bus, you’re not in that kind of situation.

See, we’ve been conditioned by our parents and gurus from the same generation that ALL DEBT IS BAD. We couldn’t disagree more. There is good debt (usually your mortgage, car loans & student loan debt), bad debt (any other loan with 6% or more interest rate) and ugly debt (those pesky high interest credit card bills.)

Debt is a tool that allows you to build your wealth, and if used smartly, you can leverage it to increase your net worth and get off the struggle bus. If you look at the self-made billionaires of the world, their history will show that their wealth was built off of debt. Smart debt is key.

In other words, when you look at the big picture, it’s 9 times out of 10 going to grow your wealth more when you invest those savings over the long-term rather than pay off debt that has 7% interest rate or less.

– Danielle Nava

Let’s play a love  debt game, play a love  debt game

See, we like to think of debt like a game, and the name of the game is interest rates. Interest rates are simply the price of borrowing money. The higher the interest rate, the more you have to pay to borrow the money. The lower the interest rate, the cheaper it is to borrow. When interest rates are low, the risk is shifted to the lender. They’re the ones left twiddling their thumbs, waiting for their money back and thinking “shoot I should have charged more, argh!” So, I want you to implement this mindset so you can take control in managing your student loan debt.

What constitutes “cheap” interest rates? We think anything under 7%. If that still feels high to you, then allow me to give you a brief history lesson in interest rates. Historically, before 2022, we were in the lowest interest rates of the past century. Our parents grew up with mortgages carrying interest rates in the double digits, and that was normal. No wonder they were in a hurry to pay it off! Trust, interest rates in the 1-7% are very low when compared to the past.

Ok so tell me what to do!

If you’ve been stressing about paying off all that student loan debt, here’s a simple guide for getting it under control and using it to your advantage:

1)     Find out what your interest rate is. If it’s over 6-7%, see if you can get it lowered. Call the lender to bargain OR shop around for a new lender. Remember, you’re the customer! They should work a little to keep you as one—it’s in their best interest. See what I did there? Even Federal loans are willing to give you a slight decrease if you set up automatic payments.

2)     How much are you paying each month?

a.     If you have a low interest rate and you’re paying around the minimum, then you’re doing great. Just make sure the extra funds you have from not over-paying are put towards saving for the future!

b.     If you have a low interest rate and you’re hammering away at it, it may be time to look at your broader financial picture if these payments are stressing you out or putting you in a bind each month. Do you have 3-6 months of expenses in cash savings built up? Are you also putting away money for the future? If you answered ‘no’ to either of these questions, then it may be time to scale your payments back down to the minimum and start saving for your future.

You’re doing great, hunny! 

Remember to give yourself some grace when it comes to your student loan debt, and don’t allow it to be a rain cloud that follows you around, or worse–controls you. When you shift your mindset and take a few simple steps to get control of it, you can use it to your advantage so you can get back to building your empire.

For a deeper dive into strategies & best practices for paying off your debt & saving, read this blog post next. 

Do you have any questions surrounding student loan debt or anything money-related? Submit it to hi@daniellenava.com and I’ll be happy to answer them.

Want more info about the services we offer? Head over to my services page to see how we can meet you where you’re at.

This blog post was updated on 6/30/23 by Danielle G. Nava, CFP®

​The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.